If personal income up to and including $25,000 is not taxed, income of $25,001 to $50,000 is taxed at 10%, and income over $50,000 is taxed at 20%, then a family earning an income of $75,000 will pay an average tax rate of:

Question

Quizplus · Accepted Answer

Income up to $25,000 is not taxed, so the first $25,000 of the family's income is tax-free. The amount over $25,000 up to $50,000 is taxed at 10%, so the family will pay $2,500 in taxes on that portion of their income. The remaining income over $50,000 is taxed at 20%, so the family will pay $5,000 in taxes on that portion.

Total tax paid = $2,500 + $5,000 = $7,500

Average tax rate = (total tax paid / total income) x 100% 
= ($7,500 / $75,000) x 100% 
= 10%

Therefore, the family's average tax rate is 10%.

If Personal Income Up to and Including $25,000 Is Not